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The CFPB is considering next steps in weighing new regulations for arbitration agreements widely used in financial services businesses to settle consumer disputes, following today’s release of the 728-page “Arbitration Study: Report to Congress 2015.” The bureau spent three years developing the report as a requirement of the Dodd-Frank Act, examining how arbitration clauses are used in six consumer finance markets: credit cards, checking accounts, prepaid cards, payday loans, private student loans and mobile wireless contracts. The CFPB examined 850 consumer finance agreements, reviewed 1,800 consumer finance arbitration disputes over three years, 3,400 federal court lawsuits, 42,000 credit card cases filed in small claims court since 2012 and surveyed 1,000 consumers. Three out of four consumers are unaware they’re subject to arbitration clauses when they sign up for financial products and services, and when there’s a dispute, many are reluctant to bring actions against companies on their own, the CFPB reported. “Our study found that these arbitration clauses restrict consumer relief in disputes with financial companies by limiting class actions that provide millions of dollars in redress each year,” Richard Cordray, CFPB director, said at today’s hearing.

A handful of representatives from the financial services industry and consumer advocates provided testimony about the flaws and merits of arbitration agreements at a field hearing held today in Newark, N.J. Witnesses included Myriam Gilles, a professor at the Benjamin N. Cardozo School of Law at Yeshiva University in New York, F. Paul Bland, Jr., executive director of the nonprofit consumer organization Public Justice, and Jane Santoni, a consumer lawyer and partner at Williams & Santoni, in Towson, Md., who each argued against arbitration, claiming the agreements generally result in unfair outcomes for consumers. Alan S. Kaplinsky, a partner at Ballard Spahr LLP, who was invited to testify and who pioneered the use of arbitration clauses in bank and credit card agreements, said that while the vast majority of consumer disputes are resolved without either arbitration or court litigation, arbitration provides many advantages over costly, time-consuming lawsuits. “It’s always seemed to me that arbitration is a great solution for both consumers and companies because everyone benefits from a process that is faster, cheaper and more efficient and congenial than court litigation,” he said. The CFPB’s report appears to ignore consumers’ actual experiences and satisfaction with arbitration, Kaplinsky contended. “In my experience, consumers fare better with arbitration than when they go to court.”

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